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8. Suppose there are two firms L and U that are identical in all respects except for their capital structure. Firm L has debt

8. Suppose there are two firms ( mathrm{L} ) and ( U ) that are identical in all respects except for their capital struc 

8. Suppose there are two firms L and U that are identical in all respects except for their capital structure. Firm L has debt of $2 million with an interest rate of 6% and firm U has only equity. Both firms have an EBIT of $500,000 and both firms have the same EBIT, i.e. the same business risk. Analyze the arbitrage process of the firms under no corporate income tax conditions.

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